Macroeconomics includes the study of inflation, or the overall rise in price levels. Why does inflation erode the purchasing power of consumers? Higher prices at the same income make goods less affordable. Purchasing power means the ability to buy goods and services. Prices of goods and services change in tandem with inflation. Consumers decrease discretionary spending if inflation is high.

Macroeconomics includes the study of inflation, or the overall rise in price levels. Why does inflation erode the purchasing power of consumers? Higher prices at the same income make goods less affordable. Purchasing power means the ability to buy goods and services. Prices of goods and services change in tandem with inflation. Consumers decrease discretionary spending if inflation is high.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter13: Inflation

Section: Chapter Questions

Problem 6SQ

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Similar questions

Suppose that the government believes the economy is not producing goods and services at its optimal level. In an attempt to stimulate the economy, the government increases the quantity of money in the economy by printing more money. This monetary policy the economy's demand for goods and services, leading to product prices. In the short run, the change in prices induces firms to produce goods and services. This, in turn, leads to a level of unemployment. In other words, the economy faces a trade-off between inflation and unemployment: Higher inflation leads to unemployment.
Suppose that the government decreases spending more than is necessary to close an inflationary gap. What is the MOST likely result? Inflation will increase. The price level will increase. Aggregate output will fall short of potential output. Aggregate output will increase.
Macro-economic recessions, like the one in 2008 – 09, are often related to the fact that consumers consume less of many of the goods they typically consume, even if the price level does not change significantly. Relate this behaviour to the budget line and indifference curves studied in this chapter, and justify your answer with graphs.
Which of the following statements best describes the aggregate supply curve? : The aggregate supply curve represents the relationship between the inflation rate and the total output or real GDP in the macroeconomy. The aggregate supply curve represents the relationship between the inflation rate and the total demand or real GDP in the macroeconomy. The aggregate supply curve represents the relationship between the price level and the total output or real GDP in the macroeconomy. The aggregate supply curve represents the relationship between taxes and spending in the macroeconomy.
Which of the following scenarios is an example of a recognition lag? The economy: a)enters a deep recession on the same day that new quarterly data show positive economic growth. b)enters a deep recession, and parliament takes two months to approve an extensive tax-cut bill.b) c)enters a deep recession, and parliament passes spending bills for public works projects that will take years to plan and build. Which of the following scenarios is an example of an administrative lag? a)Policy makers obtain relevant economic data months after a recession has already begun. b)A new law requires that all new spending bills go through at least one month of debate before receiving a parliament vote. c)In response to a recession, parliament passes a spending bill for motorway upgrades that will take years to plan and complete Government financing of deficit spending can offset the deficit's expansionary effect if government borrowing increases interest…
Now consider an economy in which the government lowers its spending. In the long run, the result would be _____________ in the price level and _____________ in real output. an increase; an increase a decrease; no change a decrease; a decrease None of the listed options is correct. no change; a decrease
The pandemic caused the economy to slow down. Which one of the following is correct to speed up recovery. a. Tax cuts, increase money supply, raise the interest rates. b. Tax cuts, increase money supply, increase government spending. c. Tax cuts, decrease money supply, raise the interest rates. d. Tax cuts, decrease money supply, increase government spending.
Classical economists believed that: price flexibility automatically directs market economies to full employment. market economies are inherently unstable because of fluctuating aggregate demand. market economies suffer prolonged periods of recessions and depressions. budget deficits and surpluses were necessary for the control of economic fluctuations.
Consumers increased consumption by a relatively small amount in 2008 and 2009 because they believed the tax cuts were temporary. True or False
The ratchet effect means that: Multiple Choice when aggregate demand increases, the price level remains constant. when aggregate supply increases, the price level decreases. when aggregate demand decreases, the price level remains constant. when aggregate supply decreases, the price level increases.
Macroeconomics Question No.5 State whether the following statements are true, false or uncertain. Also provide the explanation of false statements: The higher the level of income, higher will be the marginal propensity to consume. If marginal propensity to consume increases, aggregate demand curve will become flatter. The value of marginal propensity to consume must lies between 0 and 1. There is a direct relationship between interest rate and money supply. Government will use expansionary fiscal policy to control inflation.
All of the following are reasons that spending on durable goods is volatile except durable goods are long-lived. good substitutes exist for durable goods. high prices make durable goods risky purchases. the purchase of durable goods is not affected by interest rates.